Oct. 10) - Short of cash for coffee or a pack of gum? Credit card companies are doing all they can to help you make such small-ticket purchases as fast as possible.
Credit card firms are making it easier to use plastic for small purchases. Consumer groups worry the trend will increase debt.
Card companies are increasingly allowing no-signature transactions for purchases of less than $25 at movie theaters, pharmacies, convenience stores and fast-food restaurants. Their goal is to speed up the checkout process and get more people to pay for everyday items with plastic.
But as the amount of small-dollar items charged to cards balloons, consumer groups are expressing alarm that the quick-and-easy no-signature transactions could push people deeper into debt. Already, the average U.S. household's credit card balance has risen 76% over the past decade, to $9,159 in 2005, according to CardWeb.com.
"People should not charge a meal at McDonald's to a credit card unless you're disciplined and paying off the credit card every month," says Ken McEldowney, executive director of Consumer Action in San Francisco.
Even those who pay in full each month should think twice about charging small-ticket items, McEldowney says, because, "If you have dozens of items, folks are less likely to look at their bill. ... It becomes harder to detect fraud."
No industrywide figures are available on small-dollar items charged to plastic. But CardWeb.com estimates consumers this year will use Visa cards to buy $60 billion worth of items that cost less than $25 each, a nearly elevenfold rise from 2000. These figures include purchases on Visa credit cards as well as debit cards processed by the credit card network.
"Not having to sign is a huge convenience for consumers and a critical element" of the growth of small-dollar purchases on credit cards, says Elizabeth Buse, an executive vice president at Visa.
Merchants, too, benefit from faster no-signature transactions, credit card companies say, because the stores can serve more customers - resulting in higher overall sales. And "people will spend more if they come in with a card vs. cash," says Gareth Forsey of MasterCard Worldwide (Quote: MA).
But consumers are likely paying higher store prices for the privilege of using plastic. When payments are made with credit cards, merchants must pay banks average fees ranging from 1.8% to 2.4% of each transaction, according to Nilson Report, an industry newsletter.
As the number of small-ticket credit card purchases rises, these processing fees can, in turn, push up the prices of consumer products, says Sam Turner of Favorite Markets, a chain of convenience stores in Tennessee, Alabama and Georgia.
Still, even for small-dollar items, "You can't stop taking credit cards, because America is in love with them," Turner says. "They're a necessary evil."
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